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Climate change trillions

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The Glasgow United Nations Climate Change Conference has been advertised as an effort to focus on sustainable environmental solutions. What got much less attention, if any, is that it is probably at least as much about having a sustainable financial system. Many noted that China, did not send its leader: Xi Jinping, president of the world’s greatest CO2 emitter. There was also another significant absence: the financiers who are hoping to profit from the trillions allocated into climate change projects.

To understand the perceived importance of the climate change agenda it is necessary to start with what sustains modern economies: growth. Growth is the rate at which transactions occur. That rate has to keep rising for the system to keep going. In a capitalist system capital has a cost: a necessary return. R. Taggart Murphy’s classic book on Japan’s economic collapse, The Real Price of Japanese Money, superbly describes what happens when that return on capital is not met.

For a long time, achieving economic growth was easy enough. In the period after World War II, it came from a mix of population rises — the so called ‘baby boom’ — and technological advances, especially in manufacturing: the introduction of items such as fridges, cars, televisions. 

But those population increases slowed — fertility rates in most developed economies have fallen below replacement rates — and the technological advances intensified. There were spectacular efficiencies occasioned by advances in computerisation. Globalisation also drove down wages and prices in developed economies.

The production efficiencies raised the standard of living but, counter-intuitively, they were bad for ‘growth’. A fridge bought in the 1960s was expensive relative to incomes, so when they were sold growth increased because bigger transactions were involved. Fridges now cost very little compared with average incomes so the sales contribute much less to ‘growth’; the transactions are, in comparative terms, smaller. That pattern has been repeated across most industry sectors leading to global oversupply, lower costs and weaker economic growth.

The solution for the last two decades has been financialisation, whereby financial institutions generate money out of money. This kept the rate of transactions, or ‘growth’, intact. But it was largely achieved using debt, and it has run its course. The only way to stop a debt crisis has been to have interest rates at near zero and introduce Quantitative Easing, whereby the central bank effectively uses its reserve powers to print money.


'The climate change agenda is not a battle between greenies and big business, mediated by governments. It is about making money, a game of financial survival.'


So if financialisation cannot continue in the same way, how can the system keep ‘growing’? Answer: invent climate change trillions. In effect, the aim is to make money out of clean air, a new type of transaction.

The sums are eye watering; there is a lot of ‘growth’ to be had. The International Energy Agency has estimated the zero emissions target would cost $US150 trillion of total investment over a period of 30 years. To give some idea of the scale, global GDP is about $US80 trillion and global funds under management are about $US100 trillion. 

Bank of America notes that this $US150 trillion equates with $US5 trillion per annum, which is equal to the entire US tax base every year for 30 years. BloombergNEF claims that the total investment needed for energy supply and infrastructure could be as high $US5.8 trillion annually, which is nearly three times the amount invested on an annual basis today. 

These amounts cannot be provided either by governments or the private sector, so most of the funding will have to come central banks creating tens of trillions of dollars in Quantitative Easing, money printing. It will be transactions plucked out of thin air, or perhaps cleaner air.

The impact can already be seen. Local stock analysts now routinely give Environment, Sustainability, Governance (ESG) ratings because the big institutions, superannuation and insurance funds, include it as part of their investment practices. The Investor Group on Climate Change (IGCC), a collaboration of Australasian institutional investors (who wield the big money in the market) estimates that if Australia adopted Paris-aligned 2030 goals and committed to net zero, it could ‘unlock $131 billion in additional investment and job opportunities over the course of this decade.’ 

Critics of the climate change agenda consider it to be a financial scam designed to help the rich to get richer. They have a prima facie case at the very least, although it might also be asked: ‘when do the rich not get richer?’ The climate change agenda is not a battle between greenies and big business, mediated by governments. It is about making money, a game of financial survival. A desperate move to keep the system functioning that will inevitably fail. Ultimately, the centre cannot hold in any system that relies on printing money to succeed.




David JamesDavid James is the managing editor of personalsuperinvestor.com.au. He has a PhD in English literature and is author of the musical comedy The Bard Bites Back, which is about Shakespeare's ghost.

Main image: Wind turbines and solar panels. (Murat Turner / Getty Images)

Topic tags: David James, climate change, COP26, economic growth, finance



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Existing comments

Globalism was “a financial scam.” Although a “fridge bought in the 1960s was expensive relative to incomes”, a single wage earner could buy that fridge, educate the children, and pay off the mortgage, something nigh impossible in the globalised economy.
UN climate chief Christian Figurers admitted climate policies were designed to “intentionally” change the economic system that has reigned “since the industrial revolution.” Billionaire globalists are pressuring governments for Net-Zero, and those who go along, “will be handsomely rewarded. Those who fail to adapt will cease to exist.” (Mark Carney, representing 450 financial firms across 45 nations with $130 trillion assets). British Chancellor, Rishi Sunak, pledged to “rewire the entire financial system for net-zero.”
But with the wealthy now aligned with the Woke (former Marxist, Michael Rectenwald), and big tech censoring dissenters, the losers will be the poor, and the middle classes, the bulwark of democracies.
Glasgow COP26 was full of superficial gesture politics. Just like feudalism, it was full of pageantry, and hypocrisy.
Obama lamented: “It doesn’t matter if you’re a Republican or a Democrat if your Florida house is flooded by rising seas.” Obama recently purchased multi-million-dollar waterfront estates in both fashionable Martha’s Vineyard, and in Hawaii.

Ross Howard | 10 November 2021  

As usual, brilliant, incisive insight from an independent economist. When Dr "Twiggy" Forrest takes the cause up, you know it's a money spinner. "Saving the world" has a $$$$$ sign. I do think we need to save the world. Hopefully, the industries involved in doing this will raise the standard of living for ordinary people as did the Industrial Revolution.

Edward Fido | 10 November 2021  

Nations are not going to sacrifice either their current or planned future living standards for climate improvement. Its in the atmosphere that circles all nations and proving who is more at fault is almost theoretical.

Cam Russell | 10 November 2021  

A main thing I took out of this is the advancement of technology during the period of time after WWII. This is because everyone was happy the War II and started to celebrate and have fun.

Evie Oldham | 28 February 2022